For many Australians, property plays an important role in building long-term wealth and funding retirement. If you’ve considered using a Self-Managed Super Fund (SMSF) to invest in residential property, recent rule changes could have a significant impact on your options.
Since 10 August 2026, SMSFs have no longer been able to use a Limited Recourse Borrowing Arrangement (LRBA) to purchase ordinary residential property.
While the change does not prevent SMSFs from owning residential property altogether, it significantly changes how they can fund such a purchase.
You can no longer borrow money through your SMSF to purchase residential property
Subject to strict conditions, an SMSF could borrow money through an LRBA to buy an investment property without paying the full purchase price from its existing superannuation savings.
Under the new rules, however, an LRBA can only be used to acquire property for business use rather than residential.
While the new rules do not mean SMSFs can no longer own residential property, such property must now be bought outright from available funds rather than leveraged.
As a result, the changes significantly affect what is realistically affordable. For many SMSF trustees, this means a property purchase that may previously have been achievable through borrowing could now require a substantially larger super balance.
There are transitional arrangements for existing loans
The legislation governing these changes does include transitional provisions for arrangements entered into before the new rules commenced.
Any LRBAs for residential property entered into before 10 August 2026 are protected even if these have not yet been completed.
Additionally, the changes do not mean existing SMSF residential property loans must be repaid.
However, if you have a property loan through your SMSF, we would strongly recommend that you get expert advice before making changes to the arrangement.
It is possible to borrow to purchase commercial property in your SMSF
The new rules highlight the distinction between residential property and business property.
An SMSF can still use an LRBA to acquire eligible business real property, subject to the relevant superannuation rules.
This can be particularly attractive if you’re a business owner, as you could use your SMSF to purchase suitable commercial premises, with the business leasing them from the fund on appropriate commercial terms.
In this way, you could build retirement wealth through your super while the business occupies premises owned by the SMSF
It’s also worth considering commercial property as a viable investment option through an SMSF, even if the property does not relate to your own business
However, you should consider a range of issues before purchasing commercial property through your SMSF, and we recommend getting expert advice before proceeding.
Residential property still needs to fit into your retirement goals
Even where an outright purchase of a residential or commercial property through your SMSF is possible, the key question is whether doing so makes sense within your wider retirement strategy.
Without leverage, you may need to commit significantly more of your existing super balance to acquire residential property. This could create unacceptable concentration risk by reducing diversification within the fund and increasing the impact of any downturn in the property market.
While it is still possible to borrow to invest in commercial property, you also need to consider other issues, including diversification, potential returns, and borrowing costs (SMSF loans tend to have higher interest rates).
Property investments can also reduce the liquidity of your SMSF, which may become a more important consideration as you approach retirement and begin accessing your benefits.
Before proceeding, it’s important to assess whether residential property continues to align with your long-term objectives, risk tolerance, and retirement plans.
Find out more: The pros and cons of managing your own self-managed super
Get in touch
If you had previously considered using an LRBA to acquire residential property through your SMSF, these changes will clearly require you to review your plans and wider investment strategy.
Changes like these are a useful reminder that investment decisions should always be considered within the context of your wider retirement plans. Whether you’re reviewing an existing SMSF strategy or exploring your options for the first time, expert advice can help ensure your arrangements remain aligned with your long-term goals.
At bdhSterling, we specialise in helping clients navigate the complexities of their retirement investment strategy, and our expert advisers can help you build a resilient, long-term plan.
If you would like to talk about your own SMSF investment plans, please get in touch with us.
Please note
The value of your investment can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only; it does not take into account your personal objectives, financial situation, or needs.
Please do not solely rely on anything you have read in this article and ensure that you conduct your own research and get expert advice to ensure any actions you may take are suitable for your circumstances.
All contents are based on our understanding of HMRC and ATO legislation, which is subject to change.